Abstract:
A longstanding puzzle of empirical economics is that average labor productivity de­clines during recessions and increases during booms. This paper provides a framework to assess the empirical importance of competing hypotheses for explaining the observed pro­cyclicality. For each competing hypothesis we derive the implications for cyclical produc­tivity conditional on expectations of future demand and supply conditions. The novelty of the paper is that we exploit the tremendous heterogeneity in long-run structural changes across individual plants to identify the short-run sources of procyclical productivity.